Term 1 Year 11

Question 1

Which are the four factors of production?

Answer 1

It is: Land, Labour, capital and enterprise.

Question 2

What is Relative Scarcity

Answer 2

Relative scarcity means that we do not have enough resources to satisfy all our wants and needs.

Question 3

What is consumer Sovereignty

Answer 3

It is the situation in an economy where the desires and needs of consumers control the output of producers.

Question 4

What is consumer elasticity

Answer 4

Consumer elasticity is the amount of patience a consumer has for change in prices before they stop purchasing the product. If a consumer is elastic

Question 5

What is opportunity Cost

Answer 5

Opportunity cost is the opportunity that is wasted when purchasing an item. An example of this would the opportunity cost of buying a coke would be the materials used to make the coke could have made something else for the people that need it most.

Question 6

What are the rewards for factors of production

Answer 6

Land —–> Rent Labour –> Wages Capital –> Intrest Enterprise –> Profit

Question 7

What does the Circular Flow Of Income Look Like?

Answer 7

Question 8

What is Producer Sovereignty

Answer 8

Factors that can reduce the effects of consumer sovereignty. An example of this is marketing and misleading conduct.

Question 9

What does Y, C, S stand for and how do we find the Y

Answer 9

Y= Disposable income after tax

C = Consumption

S= Savings

You can find Y but adding C and S

Question 10

How to find the Average propensity to Consume

Answer 10

APC = C/Y

Question 11

How to find the Average Propensity To Save

Answer 11

APS = S/Y

Question 12

How to find Marginal Propensity to Consume

Answer 12

MPC = Change of C

Change of Y

Question 13

How to find the Marginal Propensity To Save

Answer 13

MPS = Change Of S

Change Of Y

Question 14

What does the Life Cycle Theory Of Consumption Look Like

Answer 14

Question 15

What does Economies of Scale Graph Look Like

Answer 15

Question 16

What are Internal Economies Of Scale

Answer 16

Internal economies of scale refer to a reduction in the average cost of production as output increases because of more efficient use of the firm’s resources. This can be due to many things that operate inside the firm.

Question 17

What are external economies of scale

Answer 17

External economies of scale result from reductions in average costs as output increases due to factors outside the firm’s direct control. This could be things like growth in the industry where the firm operates and Localisation.

Question 18

What are Diseconomies of Scale

Answer 18

Diseconomies of scale are disadvantages associated with a firm growing too large. This occurs beyond the ‘technical optimum’ level of output.

Question 19

What are internal diseconomies of scale

Answer 19

Internal diseconomies of scale refers to an increase in the average cost of production as output increases. Internal diseconomies of scale may result from bottlenecks in production such as equipment failure and more.

Question 20

What are external Diseconomies of scale

Answer 20

External diseconomies of scale refer to an increase in the average cost of production as output increases. This is influenced by something that the business can’t control. Such as loss of growth in the industry which the firm operates and also bad localization

Question 21

What is the law of demand

Answer 21

The higher the price of a good/service, the quantity of demand for that product will fall. Factors affecting market demand:

*The price of the good itself

*The price of another good or service

*Expected future prices

*Change in consumer taste/preferences

*The level of income

*Size of population and age distribution

Question 22

What are some factors that cause an increase in demand.

Answer 22

factors include: *Prices of other competing goods and services.

*A rise in substituting goods

*A fall in the price of complementary goods.

Question 23

What is the demand schedule

Answer 23

The demand schedule shows the quantity of a good/service that is demanded over a range of prices in a given period of time. It is represented in a table.

Question 24

What is the law of supply

Answer 24

The higher the price of a good/service, the quantity supplied by producers in that industry rises and vice-versa

Question 25

What happens when prices rise

Answer 25

\*Each firm produces more as it becomes more affordable \*Higher profits attract new firms to the industry

Question 26

When would a change in the supply curve occur

Answer 26

A change in the supply curve would occur when any factor other than price changes. For example, if more of the product are being demanded, more have to be made.

Question 27

What are factors causing an increase in supply

Answer 27

\*a fall in the price of alternative goods that could be produced \*An improvement in technology \*A fall in the cost of factors of production \*An increase in the availability of resources \*Producer expectations of future demand \*Changes in the season \*Regulations restricting the sale of a good \*Productions subsidized by the government

Question 28

What is the price elasticity of Supply

Answer 28

This measures the responsiveness of the quantity supplied of a product to changes in price.

Question 29

What are some factors that affect the elasticity of supply

Answer 29

Supply will be more elastic if... \*A firm has time to respond to a price change \*It has the ability to hold and stone stock. \*It has the ability to increase production while existing facilities

Question 30

What is the price mechanism

Answer 30

The price mechanism is the interaction of the forces of demand and supply in reaching market price.

Question 31

What is market failure

Answer 31

The market only responds to individual demands, this often results in unintended outcomes for society as a whole. Market tends to fail because only private costs of production are taken into account and not externalities (social costs and benefits)

Question 32

What are some examples of market failure

Answer 32

- Cigarette prices that dont cover social costs - Air traffic noise thats not included in the price - Private education costs are too high for many to afford When this occurs, governments may intervene via price or quantity intervention.

Question 33

What is price intervention

Answer 33

The government may reel that the price for a good/service is too high and impose a ceiling price. Essentially it is when the government act in an economy and they change something.

Question 34

What is an example of quantity intervention

Answer 34

The government may introduce taxes. The government may feel that too much of a good or service is being produced making negative externalities. Imposing taxes increases production costs and decreases production levels.

Question 35

What is a subsidy

Answer 35

A subsidy is a form of financial aid extended to an economic sector generally with the aim of promoting economic and social policy. Although commonly extended from government, the term subsidy can relate to any type of support – for example from NGOs or as implicit subsidies.

Question 36

What is a public good?

Answer 36

A public good is a good that is available to anyone and is usually free of charge. This includes things such as streetlights and also lighthouses. They are funded by the government using taxes.

Question 37

What is a merit good

Answer 37

A merit good is a commodity that an individual needs and should be able to pay for. Some private firms provide this but not to the level that is desired by society. Governments might subsidize (or provide tax breaks) to encourage private firms to increase their supply, or simply provide firs to increase their supply, or simply provide the merit good themselves. An example are public schools and private schools.

Question 38

What are the four main market structures and what are their characteristics

Answer 38

\*Perfect competition - unlimited no. of competitors, easy entry into the market/business, accept the market price, consumers have perfect knowledge of each firm, many substitutes. \*Monopoly- One dominant firm, virtually impossible to enter the market, they make a lot of money, no substitutes \*Monopolistic competition - Very large number of firms selling similar products, few restraints to enter the market, heavy marketing to differentiate their product, they usually just compete on prices, examples include airline companies. \*Oligopoly - Few (very large) firms selling very similar products, difficult to enter market, substitutes are avail

Question 39

What is a price ceiling

Answer 39

A price ceiling is a government-imposed price control, or limit, on how high a price is charged for a product, commodity, or service. Governments use price ceilings to protect consumers from conditions that could make commodities prohibitively expensive.

Question 40

What is a price floor

Answer 40

A price floor is the lowest legal price a commodity can be sold at.

Question 41

What is the opportunity cost of consuming a certain Good

Answer 41

The opportunity cost of consuming a certain good is the other goods a consumer has given up in order to purchase the good.

Question 42

What is the condition for equilibrium income in the four sector circular flow of income model

Answer 42

It is where total leakages equal total injections. An example of this is when S + T = I + G

Question 43

What is needed for capital accumulation to take place in an economy

Answer 43

Saving must be set aside from current income

Question 44

What can cause an inward movement in a production possibility frontier

Answer 44

The use of fewer resources in production can cause an inward movement

Question 45

What is meant by allocative efficiency

Answer 45

It is where resources are allocated due to consumer demand.

Question 46

What is a major factor influencing household consumption

Answer 46

The amount of disposable income available

Question 47

What can increase consumer sovereignty in markets

Answer 47

It can be increased by a high level of informative marketing

Question 48

What is the main goal of a business firm in a microeconomic theory

Answer 48

It is to maximise the firms profits

Question 49

If the cost of labour rises relative to the cost of capital, which of the following is likely to occur?

Answer 49

Firms will substitute capital for labour in production

Question 50

What is multifactor productivity

Answer 50

It refers to output divided by all inputs over time

Question 51

What is the likely impact of a decrease in the supply of fruit on market equilibrium?

Answer 51

There will be a rise in the equilibrium price and a fall in the equilibrium quantity of fruit.

Question 52

What factors can cause a shift in an existing market supply curve

Answer 52

Changes in the prices can cause a shift

Question 53

What is a factor market

Answer 53

a factor market is a market where factors of production are bought and sold, such as the labor market, the physical capital market, the market for raw materials, and the market for management or entrepreneurial resources.